Citi expects the S&P 500 (^GSPC) to reach a 5,100 year-end point target for 2024, just one of many bullish forecasts for next year issued by strategists.

Citi US Equity Strategist Drew Pettit joins Yahoo Finance Live to break down the relationship between the US economy and earnings growth heading forward into the new year.

"The S&P isn't the economy," Pettit says, adding: "but we're getting a lot of productivity gains, which helps push earnings higher even if we have a macro slowdown. This is definitely something that is more concentrated in the S&P compared to what we have seen in more cyclical sectors or even when we move down into small cap."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

- Andrew, talk to me about the relationship between earnings growth, economic growth, and then also throw in the outlook for rates on there.

DREW PETTIT: Yeah, so it's a little complicated. That's how we kind of spun this in our outlook. So yes, the economy does help earnings. We can't deny that. But it doesn't determine it either. So the S&P isn't the economy, and we kind of fight this battle internally and with a lot of macro-focus investors all the time. But we're getting a lot of productivity gains, which helps push earnings higher even if we have a macro slowdown.

This is definitely something that is more concentrated in the S&P compared to what we've seen in more cyclical sectors or even when we move down into small cap. So at the end of the day, yeah, we could have slowing but we're going to get efficiency gains. That's what's going to help drive earnings, that's what's going to help drive the market.

- Andrew, this is-- your call coming here as we've already seen obviously a nice rally in the market. So I'm interested to get your take on valuation as well. You obviously must think it's constructive still?

DREW PETTIT: Yeah, so look, I hate when people start talking about the S&P in historical context. Yeah, look, I'm a student of history but we can't just say we're going to trade at a 16 times multiple because that's what the S&P has been average since 1940. OK great, well, the S&P isn't the same as it was in 1940. We have much higher growth companies, they have better margins, they have better secular tailwinds.

When you put that all together and you think about where we are with interest rates, their decline of late, where we've come from a high point in inflation to where we are today and are still resilient earnings outlook, honestly 20, 21 times is not unreasonable for this market. We think that's fair value. Where the Fed comes into play, if we get more than 75 to 100 basis points of cuts, say we do get 150 basis points of cuts like the market's pricing in for the Fed next year, it's actually possible you could see 23, 24 times on the index.